Easing for Banks Following Moderate Triumph in Motor Finance Sector
The UK Supreme Court has delivered a judgment in the motor finance commission case, significantly narrowing the scope of consumer claims against lenders and dealerships regarding undisclosed commission payments in motor finance agreements.
The ruling, delivered on 2 August 2025, provides greater legal certainty and relief to the motor dealer and finance industries, which faced massive potential liabilities previously estimated at over £40 billion or £18 billion in compensation.
The Court reversed most of the earlier rulings that had favored claimants, holding that non-disclosure alone does not automatically create an unfair credit relationship; unfairness must be assessed based on the overall conduct and terms. Only one claimant succeeded due to specific facts showing unfairness caused by a failure to disclose a £1,650 commission.
The FCA, which aims to ensure that consumers are fairly compensated and that the motor finance market works well, has indicated it will soon consult on a redress and compensation scheme. This confirms that some historic liabilities remain possible.
The Supreme Court's decision limits motor finance commission claims primarily to fact-specific cases, easing concerns about broad consumer refunds. However, the potential redress scheme could rival the historical PPI saga in terms of scale.
Lloyds Banking Group, which owns leading vehicle finance provider Black Horse, has set aside provisions amounting to £1.2bn for the motor finance commission case. Santander and Barclays have also set aside provisions amounting to £295m and £90m respectively.
The case stemmed from three individuals who sought legal action against the banks in different local courts across England. The Supreme Court upheld the appeals of Close Brothers and FirstRand Bank, while Johnson, one of the claimants, was ruled in favor, receiving commission and interest for his case as his commission was deemed unfair.
The ruling is expected to stabilize the motor finance and broader UK consumer credit markets, reducing uncertainty for banks and financial institutions involved. However, the FCA's upcoming consultation on compensation means some financial consequences remain for lenders.
In a related development, Santander announced earlier this year that it was spinning off its motor finance division. Specialist lender Secure Trust Bank has said it will phase out the business' loan book.
The Treasury had expressed concerns that a redress scheme could drive companies out of the market, making it harder for consumers to access credit to buy cars. Lord Justice Reed clarified that the ruling was handed down when markets were closed for the weekend to avoid market disorder.
Despite the relief for Close Brothers, the upholding of Johnson's case suggests the door is not fully closed for motor finance complaints. The Supreme Court's decision marks a significant victory for the lending sector, curbing a potential £30bn loss for the banking sector.
[1] - BBC News, "Motor finance commission case: Supreme Court ruling limits consumer claims", 2 August 2025, link [2] - The Guardian, "Supreme Court ruling limits motor finance commission claims", 2 August 2025, link [3] - Financial Times, "Motor finance commission case: Supreme Court narrows scope of consumer claims", 2 August 2025, link [4] - City A.M., "Motor finance commission case: Supreme Court ruling provides relief to lenders", 2 August 2025, link [5] - Sky News, "FCA to consult on motor finance redress scheme following Supreme Court ruling", 2 August 2025, link
- The UK Supreme Court's decision in the motor finance commission case has provided legal certainty and relief to the motor dealer and finance industries, which had faced potential liabilities in excess of £40 billion.
- The Supreme Court's ruling has significantly narrowed the scope of consumer claims against lenders and dealerships in motor finance agreements, limiting them mainly to fact-specific cases.
- The Financial Conduct Authority (FCA) has indicated that it will soon consult on a redress and compensation scheme for the motor finance industry, which could potentially rival the historical PPI saga in scale.
- Banks and financial institutions involved in the motor finance market, such as Lloyds Banking Group, Santander, and Barclays, have set aside provisions to cover potential losses resulting from the motor finance commission case.
